On February 15th, 2023, the United States Court of Appeals for the Third Circuit heard oral arguments for Johnson v. NCAA.[2] The key question in this case is whether Division I student-athletes can be considered employees of their schools and the NCAA as a joint employer, and therefore enjoy protections under the Fair Labor Standards Act (FLSA).[3] The 3rd Circuit specifically considered whether the defendant schools and the NCAA could prevail on a motion to dismiss—the heart of the question is not whether athletes are employees, but whether they could be employees.[4]
Prior to reaching the Third Circuit, the United States District Court for the Eastern District of Pennsylvania (EDPA) ruled that the plaintiff student-athletes “plausibly alleged they were employees of colleges and universities they attend, under the primary-beneficiary test, to support their FLSA action.”[5] Judge Padova, who presided over the case, found the complaint plausibly alleged employment status.[6] Judge Padova also notably rejected the NCAA’s circular amateurism argument that “colleges may decline to pay student-athletes because the defining feature of college sport . . . [i]s that student athletes are not paid.”[7] These doubts surrounding the viability of the NCAA’s amateurism model carried over to oral argument before the 3rd Circuit.[8]
The Third Circuit’s three-judge panel addressed upfront that the NCAA’s “core principle that college athletes shouldn’t be paid [was] unpersuasive and incongruous.”[9] NCAA attorney Steven Katz began his arguments by stressing that student-athlete employee status would result in a “minefield of unforeseen consequences,” namely significant Title IX and Title VII implications that could wind back years of progress for female athletes in reaching equality.[10] The panel responded to this argument by highlighting the discrepancies between the women’s and men’s weight rooms in the 2020 March Madness basketball tournament, providing that inequalities are already present and deeply entrenched in the NCAA.[11]
In turn, Johnson’s attorney, Michael Willemin, attempted to ease the concerns surrounding the uncertainties that would come with a student-athlete employment model. Willemin stressed there is already an infrastructure in place to support paying student-athletes because the athletes have to submit time sheets for the number of hours they practice each week, and schools have work-study programs that could be used as a model for paying athletes.[12]
The “hot bench” of the Third Circuit left many thinking that a ruling in favor of student-athlete employment status is inevitable, after the relentless questioning and skepticism toward Katz’s arguments. However, the sentiments from the panel favoring the plaintiffs do not mean the NCAA and member schools must put the 192,000 Division I student-athletes on their payroll. A decision from the panel is not expected until later this year and, on a technical level, if the panel holds that Judge Padova correctly denied the NCAA’s motion to dismiss, then the case will return back to the EDPA federal district court for pretrial discovery.[13]
Title IX and Equal Pay Act Implications:
Title IX implications are at the forefront of the concerns over student-athlete employment status.[14] Title IX is a federal law that “bars discrimination on the basis of sex for any educational program or activity receiving federal financial assistance.”[15] It’s uncertain whether Title IX will apply to a student-athlete employee model because the law does not cover the NCAA as a whole, but only its member schools.[16] If Title IX does apply, the law would require male and female athletes to receive comparable compensation and benefits.[17] However, the vast difference in revenue production between men’s sports (specifically football and basketball) and women’s sports is at tension with this compensation scheme.[18] Notably, the Third Circuit specifically questioned whether there could be a distinction between athletes who play sports that bring in significant profit and those that don’t suggest the judges believe revenue-sport athletes could be employees, which is typically only men’s teams.[19] Only compensating male athletes in revenue-producing sports would raise Equal Pay Act (EPA) questions.
The Equal Pay Act requires that “men and women in the same workplace be given equal pay for equal work. The jobs need not be identical, but they must be substantially equal.”[20] A few months ago, the United States Women’s National Soccer Team reached a historical equal pay deal that requires identical compensation between the men’s and women’ s teams for all competitions.[21] In light of this monumental collective bargaining agreement and the EPA, it would appear inconsistent to only compensate athletes in the largest revenue producing sports, especially when men’s basketball has a direct female counterpart that carries out nearly identical “work.”
Nevertheless, the NCAA and its member schools are not out of the woods if they simply paid all athletes the same wage. Tom McMillian, a former NBA basketball player and U.S. Congressman suggested that if “male athletes believe profits of their labor are being proportioned unfairly to female athletes,” they could legally challenge the school’s compensation systems.[22] Therefore, any compensation model a school crafts will be subject to scrutiny and the threat of litigation on Title IX and EPA bases (as well as many others).
Taxes for Student-Athletes?
Another looming issue surrounding the possible student-athlete employment model is taxes.[23] Currently, “qualified scholarships by an individual who is a candidate for a degree at an educational organization,” are not taxed under the Internal Revenue Code § 117.[24] An assumption under the § 117 exclusion is that students, including student-athletes, receive scholarships without the expectation of providing anything in return to the university, which is fundamentally inconsistent with the possible finding that student-athletes are employees of their universities. Therefore, if athletes become employees, any scholarship money that could be viewed as wages would likely be considered taxable income.[25]
Additionally, if the Third Circuit agrees that the athletes plausibly alleged employment status under the primary beneficiary test, the court will find itself at odds with the Seventh and Ninth Circuit Courts of Appeals who have previously ruled that student athletes are not employees of their universities; however, the circuits in these cases grounded their rulings on the amateurism principle that is seeming to erode away with every court opinion.[26] Moreover, a circuit split increases the chance that the Supreme Court will take the case, but until the Third Circuit hands its decision down, there is only room to consider the implications of the panel’s decisions.
These two student-athlete employment status questions and implications are just a few drops in a sea of uncertainty. No matter the Third Circuit’s ruling, the NCAA, college athletes, and fans alike will be left with more questions than answers moving forward. The only certainty rising out of the Johnson litigation is that the current NCAA student-athlete model can no longer stand on the pillars of amateurism.[27]
References: [2] Peter Hayes, NCAA Battling From Behind in Student Athlete Employee Suit, Bloomberg Law (15 Jan. 2023) https://news.bloomberglaw.com/litigation/ncaa-battling-from-behind-to-upend-student-athlete-employee-suit#:~:text=In%20Johnson%20v.,colleges%20and%20universities%20they%20attended. [3] Id. [4] Id. [5] Johnson v. NCAA, 556 F.Supp.3d 491 (E.D.Pa. 2021). [6] Id. at 512. [7] Id. at 501. [8]Michael McCann, NCAA Amateurism Roasted By ‘Hot Bench’ in Federal Appeals Hearing, Sportico (15 Feb. 2023). https://www.sportico.com/law/analysis/2023/federal-appeals-court-rebukes-ncaa-1234710033/ [9] Id. [10] Id. [11]Id. [12]Id. [13]Id. [14]McCann, supra [15]Eric Prisbell, Johnson v. NCAA: Why College Sports Fans Need to Pay Attention to this Court Case, On3 (21 Feb. 2023) https://www.on3.com/news/johnson-v-ncaa-why-college-sports-fans-need-to-pay-attention-to-this-court-case/ [16]Id. [17]Id. [18]Id. [19]McCann, supra [20]EEOC, Equal Pay/Compensation Discrimination, https://www.eeoc.gov/equal-paycompensation-discrimination [21]USSoccer [22]Prisbell, supra [23]McCann, supra [24]26 U.S.C. § 117 [25]https://twitter.com/CWilcoxson [26]Hayes, supra; see also Gillian Berger, et al. v. NCAA (7th Cir. 2016); Dawson v. NCAA (9th Cir. 2017). [27]Prisbell, supra